Financial Hardship before
and after Social Security’s
Eligibility Age
Richard W. Johnson
Gordon B.T. Mermin
March 2009
The Retirement Policy Program
A crosscutting team of Urban Institute experts in Social Security, labor markets, savings behavior, tax and budget
policy, and micro-simulation modeling ponder the aging of American society.
The aging of America raises many questions about what’s in store for future and current retirees and whether society
can sustain current systems that support the retired population. Who will prosper? Who won’t? Many good things
are happening too, like longer life and better health. Although much of the baby boom generation will be better off
than those retiring today, many face uncertain prospects. Especially vulnerable are divorced women, single mothers,
never-married men, high school dropouts, and lower-income African-Americans and Hispanics. Even Social
Security—which tends to equalize the distribution of retirement income by paying low-income people more then
they put in and wealthier contributors less—may not make them financially secure.
Uncertainty about whether workers today are saving enough for retirement further complicates the outlook. New
trends in employment, employer-sponsored pensions, and health insurance influence retirement decisions and
financial security at older ages. And, the sheer number of reform proposals, such as personal retirement accounts to
augment traditional Social Security or changes in the Medicare eligibility age, makes solid analyses imperative.
Urban Institute researchers assess how current retirement policies, demographic trends, and private sector practices
influence older Americans’ security and decisionmaking. Numerous studies and reports provide objective,
nonpartisan guidance for policymakers.
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social,
economic, and governance problems facing the nation.
The authors are grateful to Corina Mommaerts and Desmond Toohey for outstanding research assistance.
The research reported herein was supported by the Center for Retirement Research at Boston College pursuant to a
grant from the U.S. Social Security Administration funded as part of the Retirement Research Consortium. The
views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its
funders.
The Urban Institute, 2100 M Street, N.W., Washington, D.C. 20037
Copyright © 2009. Permission is granted for reproduction of this document, with attribution to the Urban Institute.
Contents
Tables............................................................................................................................................iii
Abstract .........................................................................................................................................iv
Executive Summary ....................................................................................................................... v
Introduction.....................................................................................................................................1
Background .....................................................................................................................................2
Methods.......................................................................................................................................... 5
Measures ............................................................................................................................ 6
Tabulations......................................................................................................................... 9
Models.............................................................................................................................. 11
Results.......................................................................................................................................... 11
Trends in Hardship Rates................................................................................................. 15
Tracking Hardship Rates for the 1937–39 Birth Cohort.................................................. 15
Changing Sources of Income before and after Age 62 .................................................... 18
Hardship Rates and Employment Transitions.................................................................. 21
Transitions into Economic Hardship ............................................................................... 28
Conclusions.................................................................................................................................. 34
References.................................................................................................................................... 36
Financial Hardship before and after Social Security Eligibility
ii
Tables
1. Share of Older Americans Experiencing Financial Hardship, by Age and Other
Characteristics, 2005...................................................................................................................12
2. Trends in the Percentage of Adults Age 50 to 60 Experiencing Financial Hardship, 1991,
1997, and 2003............................................................................................................................14
3. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship,
by Year........................................................................................................................................16
4. Real Mean Household Income for Adults Born between 1937 and 1939, by Year (2005
Dollars) .......................................................................................................................................19
5. Size and Characteristics of Labor Force Transition Groups, Adults Born between 1937 and
1939.............................................................................................................................................22
6. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by
Layoff Status, Health, Education, and Year ...............................................................................24
7. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by
Labor Force Transition and Year................................................................................................25
8. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by
Employment Status, Health, Education, and Year......................................................................27
9. Percentage of Adults Born between 1937 and 1939 Falling into Financial Hardship before Age
62, among Those Not in Financial Hardship in 1992 .................................................................29
10. Marginal Impact of Personal Characteristics on the Probability of Falling into Financial
Hardship, Age 51–73 ..................................................................................................................31
11. Marginal Impact of Personal Characteristics on the Probability of Falling into Financial
Hardship, Men Age 51–73..........................................................................................................32
12. Marginal Impact of Personal Characteristics on the Probability of Falling into Financial
Hardship, Women Age 51–73.....................................................................................................33
iii
Retirement Policy Program
Abstract
Although poverty rates for Americans age 65 and older have plunged over the past half
century, many people continue to fall into poverty in their late fifties and early sixties. This study
examines financial hardship rates in the years before qualifying for Social Security retirement
benefits at age 62 and investigates how the availability of Social Security improves economic
well-being at later ages. The analysis follows a sample of adults from the 1937–39 birth cohort
for 14 years, tracking their employment, disability status, and income as they age from their early
fifties until their late sixties. It measures the share of older adults who appear to have been forced
into retirement by health or employment shocks and the apparent impact of involuntary
retirement on low-income rates. The study also estimates models of the likelihood that older
adults experience financial hardship before reaching Social Security’s early eligibility age.
The results show that the likelihood of experiencing financial hardship increases
significantly as people approach Social Security’s early eligibility age. The increase in hardship
rates is concentrated among workers with limited education and health problems. For example,
among those who did not complete high school, hardship rates increase from 23 percent at age
52 to 54 to 31 percent at age 60 to 61, a relative increase of 36 percent. Hardship rates decline
after age 62, when most people qualify for Social Security retirement benefits. These findings
highlight the fragility of the income support system for Americans in their fifties and early
sixties.
Financial Hardship before and after Social Security Eligibility
iv
Executive Summary
Although poverty rates for Americans age 65 and older have plunged over the past half century,
many people continue to fall into poverty in their late fifties and early sixties. Disability and job
displacement frequently create financial hardship for people throughout the working-age
population, but the risks are particularly serious in the years just before age 62. Health problems
become increasingly common with age, and older people displaced from their jobs by layoffs or
business closings often face special difficulty finding work. The limited availability of public
income supports magnifies economic insecurities for older workers who are not yet 62, when
eligibility for Social Security retirement benefits begins. Social Security disability insurance
benefits are available only to workers who successfully navigate an arduous and unpredictable
application process, and may begin no sooner than five months after disability onset. Increasing
numbers of displaced workers fail to qualify for unemployment benefits, and those who do
qualify receive benefits for only a limited time. Raising Social Security’s early eligibility age,
which many analysts advocate, could leave more older Americans at risk of financial hardship.
This study examines financial hardship rates in the years before qualifying for Social
Security retirement benefits at age 62 and shows how the availability of Social Security improves
economic well-being at later ages. Data come from the University of Michigan’s Health and
Retirement Study (HRS), which has been collecting longitudinal employment, health, and
financial data on a large sample of older Americans since 1992. The analysis follows a sample of
adults from the 1937-39 birth cohort for 14 years, tracking their employment, disability status,
and income as they age from their early fifties until their late sixties. It measures the share of
older adults who appear to have been forced into retirement by health or employment shocks and
v
Retirement Policy Program
the apparent impact of involuntary retirement on low-income rates. The study also estimates
models of the likelihood that older adults experience financial hardship before reaching the
Social Security early eligibility age.
The analysis defines financial hardship as having own income (and spousal income if
married) below the federal poverty level. Poverty thresholds for adults younger than 65 are used
throughout the analysis (even for those older than 65) because using different thresholds at
different ages would obscure observed trends in financial well-being.
The results show that the likelihood of experiencing financial hardship increases
significantly as people approach Social Security’s early eligibility age. The increase in hardship
rates is concentrated among workers with limited education and those with health problems.
Hardship rates decline after age 62, when most people qualify for Social Security retirement
benefits.
•
The overall hardship rate increases steadily as the 1937-39 birth cohort moves from
the early fifties to early sixties, growing from 9.2 percent at age 52 to 54 to 12.3
percent at age 60 to 61, a relative increase of roughly one-third. The pattern reverses
after age 62, when people qualify for Social Security retirement benefits. The
hardship rate falls to 10.4 percent at age 63 to 64 and to 8.5 percent at age 66 to 68.
•
Hardship rates grow dramatically for people with limited education as they approach
Social Security’s early entitlement age. Among those who did not complete high
school, hardship rates increase from 22.6 percent at age 52 to 54 to 30.8 percent at
age 60 to 61, a relative increase of 36 percent. Hardship rates for those without a high
school diploma then fall to 24.1 percent at age 63 to 64 and to 22.3 percent at age 66
Financial Hardship before and after Social Security Eligibility
vi
to 68. However, the share of college graduates with incomes below the federal
poverty level does not increase significantly as the cohort approaches age 62, nor
does it fall significantly after age 62.
•
Declines in economic well-being in the late fifties and early sixties are closely tied to
work ability. Two-fifths of adults working full-time at age 52 to 54 reduce their labor
supply before age 62; one-fourth completely stop working, leaving the labor force
directly from full-time employment, and another one-seventh move to part-time
employment before leaving the labor force. Financial hardship rates more than
quadruple between age 52 to 54 and age 60 to 61 for workers who exit the labor force
early directly from full-time employment. The consequences are particularly serious
for those with limited education, more than half of whom report incomes below the
poverty level at age 60 to 61 (up from fewer than 1 in 10 at age 52 to 54).
•
Many early labor force departures appear to be at least somewhat involuntary. More
than one-quarter of those who move directly out of the labor force from full-time
employment have been laid off from a job in their fifties or early sixties, and slightly
more than one-half report having a health problem that limits their ability to work. By
contrast, fewer than one in six workers employed full-time through age 62 report any
work disabilities.
•
Multivariate models that control for demographics, health status, and the overall
poverty rate show that the risk of experiencing financial hardship increases
significantly with age for adults in their fifties and early sixties and then declines after
vii
Retirement Policy Program
age 62. Health problems also significantly boost hardship rates, especially for those
with limited education.
These results highlight the fragility of the income support system for Americans in their
fifties and early sixties. Many people who develop health problems as they age fall into poverty
before reaching Social Security’s early eligibility age. Raising the retirement age would put more
people at risk. As lifespans lengthen and physical job demands decline, more and more older
Americans are able to work, perhaps justifying an increase in Social Security’s early eligibility
age. However, high poverty rates among people in their early sixties with work disabilities reveal
the shortcomings in the existing safety net for people with disabilities. Efforts to shore up the
disability income system will become even more urgent if Social Security retirement ages are
raised.
Financial Hardship before and after Social Security Eligibility
viii
Introduction
Although poverty rates for Americans age 65 and older have plunged over the past half century,
many people in their late fifties and early sixties continue to run the risk of falling into poverty.
Disability and job displacement frequently create financial hardship for people throughout the
working-age population––often forcing workers out of the labor force or into unemployment––
but the risks are particularly serious in the years just before age 62. Health problems become
increasingly common with age, and older people displaced from their jobs by layoffs or business
closings often face special difficulty finding work. The limited availability of public income
supports magnifies economic insecurities for older workers who are not yet 62, when entitlement
to Social Security retirement benefits begins. Social Security disability insurance (SSDI) benefits
are available only to workers who successfully navigate an arduous and unpredictable
application process, and may begin no sooner than five months after disability onset. SSDI
beneficiaries must also satisfy the program’s work history requirement, which disqualifies some
people. Increasing numbers of displaced workers fail to qualify for unemployment benefits, and
those who do qualify receive benefits for only a limited time.
Social Security’s financial problems increase the need for up-to-date information on the
economic hardships experienced by Americans in their fifties and early sixties. Numerous
analysts have advocated raising Social Security’s entitlement ages to reduce or eliminate the
system’s long-term deficit, primarily because average lifespans and time spent in retirement have
increased and old-age disability has declined. This approach, however, could substantially reduce
economic well-being for older people who are struggling under the current system. A better
understanding of the prevalence, intensity, and drivers of economic hardship in the years
1
Retirement Policy Program
immediately before age 62 is essential to assessing the wisdom of increasing Social Security’s
retirement ages.
This study examines the extent to which workers experience increased hardship in the
years before qualifying for Social Security retirement benefits at age 62 and how much the
availability of Social Security improves economic well-being at later ages. Using recent data
from a nationally representative survey, the paper computes rates of financial hardship in 2005
from age 53 to 68, assesses how rates vary by demographic characteristics, and examines trends
since 1991. The study then follows a cohort of older adults for 14 years, tracking their
employment, disability status, and income as they age from their early fifties in 1991 until their
late sixties in 2005. We measure the share of older adults who appear to have been forced into
retirement by health or employment shocks and the apparent impact of involuntary retirement on
low-income rates. A final set of analyses estimates models of the likelihood that older adults
experience financial hardship before reaching the Social Security early entitlement age.
The results show that financial hardship increases substantially for people with limited
education and health problems as they approach Social Security’s early eligibility age. Hardship
rates are particularly high for less-skilled workers who retire early. However, their economic
status improves significantly when they reach age 62 and qualify for Social Security retirement
benefits, highlighting the important role that Social Security plays in bolstering the economic
security of low-income older adults.
Background
Many workers begin exiting the labor force before they qualify for Social Security benefits at
age 62. In 2008, nearly one-third (32 percent) of men age 60 to 61 did not participate in the labor
Financial Hardship before and after Social Security Eligibility
2
force, compared with less than one-tenth (8 percent) of men age 40 to 44 (Bureau of Labor
Statistics 2008). About 14 percent of men and 24 percent of women age 50 to 61 did not
participate in the labor force in any month in 2001 (Congressional Budget Office [CBO] 2004),
and fewer than 40 percent of workers born between 1931 and 1941 were still at their career jobs
by age 60 (Cahill, Giandrea, and Quinn 2005).
Although many workers with ample resources choose to retire early, poor health or job
layoffs force others to leave the labor force before they qualify for retirement benefits. About one
in four workers age 51 to 55 develop serious health problems by age 62 that limit their ability to
work, and one in five are laid off from their jobs (Johnson, Mermin, and Murphy 2007). Own
health problems can lead to early retirement (Bound et al. 1998; McGarry 2004), and workers
sometimes have to cutback on their work hours to care for ill family members (Coile 2003;
Johnson and Favreault 2001; Johnson and LoSasso 2006). Onset of health problems may be
particularly problematic for workers with physically demanding jobs. About 7 percent of all
workers and 17 percent of workers without high school diplomas hold highly physically
demanding jobs that require strength, bending or twisting, or quick reaction time (Johnson,
Mermin, and Resseger 2007). Older workers displaced from their jobs often encounter problems
finding work (Chan and Stevens 2001; Munnell et al. 2006), and those who become reemployed
tend to earn much less on their new jobs than they did on their former jobs (Couch, Jolly, and
Placzek 2009), perhaps because employers are reluctant to hire workers near the end of their
careers or because older people face outright discrimination in the labor market (Lahey 2008).
Some workers pushed out of the labor force may avoid hardship by falling back on assets
and other income sources. Workers who develop serious health problems may qualify for
disability benefits, and unemployment benefits may bridge the gap to Social Security for workers
3
Retirement Policy Program
who are laid off. Employer-provided pensions and income from spouses may also cushion the
blow. But many lack these resources and may struggle financially until they reach the Social
Security eligibility age. For example, nearly half of all workers lack pension coverage (Bureau of
Labor Statistics 2007), and only about a quarter of adults developing serious health problems in
their fifties qualify for disability benefits (Johnson, Mermin, and Murphy 2007). Although the
vast majority of jobs in the U.S. are covered by unemployment insurance, only 36 percent of the
unemployed in 2007 received benefits (Simms and Kuehn 2008). Many workers are ineligible
for benefits because they did not earn enough or work long enough before losing their jobs.
Additionally, those awarded unemployment benefits receive only temporary assistance; benefits
usually run out after 26 weeks. Risk of pre-retirement hardship may be greatest for workers with
limited education, who are more likely both to develop health problems and to work in
physically demanding occupations and less likely to have other resources to fall back on if
pushed out of the labor force.
Although hardship among retirees and families with children has been thoroughly
researched (Betson and Michael 1997; Butrica, Murphy, and Zedlewski 2008; Englehardt and
Gruber 2004; Holzer et al. 2007; Hurd 1990; Johnson and Smeeding 2000; Sawhill 1988;
Smolensky, Danziger, and Gottschalk 1988), less is known about hardship in the years leading
up to Social Security eligibility. Previous studies have shown that poverty rates among adults in
their fifties are much higher for those out of the labor force—particularly disabled adults—than
for workers. Among adults age 50 to 61, about 21 percent of those out of the labor force in every
month of 2001 were impoverished, compared with just 3 percent of adults participating in the
labor force (CBO 2004).
Financial Hardship before and after Social Security Eligibility
4
Researchers have attempted to assess how many adults would face substantial hardship if
early Social Security benefits were not available by comparing the characteristics of workers
who take up Social Security before the normal retirement age with those who delay take-up
(Burkhauser, Couch, and Phillips 1996; CBO 1999; Leonesio, Vaughan, and Wixon 2000; Panis
et al. 2002). Many workers taking up Social Security early appear wealthy enough to have
voluntarily retired early, rather than having been forced out early. Early takers have wealth levels
similar to workers who delay take-up and have higher pension coverage rates. More than threequarters of workers taking up Social Security early are healthy. Yet, some early takers appear as
if they would suffer significant hardship if early benefits were not available. Compared with
workers who delay take-up, early takers are more likely to have health-related work limitations,
lack a high school diploma, and work in blue-collar occupations. These studies conclude that
about 10 percent of early takers have health-related work limitations and lack pension income
and would therefore suffer financially if early Social Security benefits were eliminated. Our
study further examines the extent to which early Social Security benefits reduce hardship by
examining hardship rates before and after age 62.
Methods
To measure financial hardship in the years preceding and following Social Security eligibility,
we examine data from the Health and Retirement Study (HRS), a large, nationally representative
survey of older Americans. Fielded by the University of Michigan’s Survey Research Center
with primary funding from the National Institute on Aging, the HRS began interviewing 12,652
respondents age 51 to 61 and their spouses (of any age) in 1992. These respondents have been
5
Retirement Policy Program
reinterviewed every other year through 2006.1 HRS began interviewing a cohort of respondents
age 70 and older in 1993, and a cohort age 68 to 74 in 1998. Additionally, every six years
beginning in 1998 they introduce a new cohort of respondents age 51 to 56. Each of these
cohorts are reinterviewed with the original HRS cohort. In 2006, then, the survey collected data
on a nationally representative sample of Americans age 53 and older, and their spouses. HRS
oversamples African Americans, Hispanics, and Florida residents, but includes sampling weights
that can be used to generate estimates that reflect the underlying population. Detailed data are
collected on a wide range of topics, including income, assets, employment, employment history,
health and disability, and demographics.2
Measures
One of HRS’ important strengths is the high qualify of its income measures (Hurd, Juster, and
Smith 2003). At each interview the HRS asks respondents (or financially knowledgeable spouses
when both spouses in a couple are interviewed) about how much they and their spouses received
during the previous calendar year from earnings, pension and annuity benefits, Social Security
retirement benefits, Social Security disability benefits and Supplemental Security Income (SSI),
income from assets, unemployment insurance and Workers Compensation benefits, other
government transfers, and other sources. Respondents who are unable to provide an exact
amount are asked whether the payments fall within certain ranges, and RAND has imputed
missing responses consistently across interview waves. However, the survey does not collect
reliable information on income received by household members who are not the respondent’s
1
The 2008 survey has been fielded, and additional biennial surveys are planned.
2
The Rand Center for the Study on Aging has processed some HRS data and offers these cleaned files to the public.
Our analysis uses these files (version H) whenever possible.
Financial Hardship before and after Social Security Eligibility
6
spouse or partner, so our estimates of household income may be understated. We express all
income measures in constant 2005 dollars, as adjusted by the change in the consumer price index
(CPI).
Our financial hardship estimates are based on the official U.S. Census Bureau poverty
thresholds, designed to indicate the bare minimum amount of income necessary to get by. They
were originally computed as the cost of a minimally adequate diet in 1963, multiplied by three to
capture nonfood living expenses (Orshansky 1963). They increase with household size, are
somewhat lower for households headed by an adult age 65 or older than for those headed by
younger adults, and adjust each year by the change in the CPI. Doubts about how well the
official poverty thresholds describe today’s spending needs have been growing, particularly since
the underlying data used to compute the original thresholds are now so old (Blank and Greenberg
2008; Citro and Michael 1995). In fact, the official poverty measure appears to understate the
number of adults age 65 and older with inadequate income (Butrica, Murphy, and Zedlewski
2008). However, our purpose in this paper is not to assess the appropriateness of the poverty
measure, but instead to use the official threshold as a rough indicator of financial hardship and to
assess how hardship rates vary as people approach and surpass traditional retirement ages.
We identify respondents who experience financial hardship in two ways. Our first
measure includes only those whose combined own income and spousal income (or only own
income if they are not married or partnered) falls below 100 percent of the official federal
poverty level. Because the poverty threshold is so low, we alternatively define financial hardship
to include those with combined own income and spousal income (or just own income if
appropriate) that falls below 125 percent of the poverty level. We use the thresholds for adults
younger than 65 throughout (even for those older than 65), because one of our goals is to assess
7
Retirement Policy Program
how income adequacy varies as people age, and we do not want observed trends to be
confounded by abrupt changes in poverty thresholds. We use the threshold that corresponds to
the respondent’s family size, based on information reported in the HRS.
We construct measures of health status, job displacement, and employment transitions
that likely help account for changes in economic hardship rates. We identify adults as having
work-limiting health problems if they report a health problem that limits the type or amount of
work that they can do. Another measure indicates whether respondents have ever been laid off
from their jobs or lost their jobs because of a business closing between the baseline interview and
age 62, based on responses to survey questions about why they left their previous jobs. We also
create five mutually exclusive employment transition categories for adults age 53 to 55 in 1992:
(1) those who are employed full time (working 35 or more hours per week) at every interview
wave until age 62; (2) those employed full-time in 1992 who transition directly to zero hours of
work before age 62 and never return to work (either part-time or full-time) before age 62; (3)
those employed full-time in 1992 who transition to part-time work before age 62 and never
return to full-time work again (although some move in and out of part-time employment); (4)
those who work intermittently between age 53 to 55 and age 62; (5) and those who never work
between age 53 to 55 and age 62. The intermittent work category includes workers who do not
work full-time at baseline and those who move in and out of full-time work. These work
transition categories are based on work status at the time of the survey interviews, and thus do
not reflect work status between the waves. As a result, some people who we describe as having
never worked may in fact have been employed at some point between 1992 and age 62, but they
were not employed at the survey interviews.
Financial Hardship before and after Social Security Eligibility
8
Tabulations
The analysis begins by computing financial hardship rates at points in time. We first compute
hardship rates in 2005 for three- and four-year age groups, separately by gender, education, race,
marital status, and health status, for a sample of adults age 52 to 68. We also examine how
hardship rates vary in 1991, 1997, and 2003 for adults age 50 to 55 and those age 56 to 60.
The analysis then computes hardship rates for a sample of 2,830 respondents born
between 1937 and 1939 as they age from 52 to 54 in 1991 to age 66 to 68 in 2005. Following a
birth cohort over time is a better way to measure how outcomes change with age than comparing
different age groups at a single point in time. People born in a particular year may differ
systematically from those born in another year, potentially distorting cross-sectional
comparisons. Among workers age 51 to 56, for example, 22 percent of those born between 1936
and 1941 did not complete high school, compared with only 10 percent of those born between
1948 and 1953. If we compare 2004 outcomes for those who did not complete high school in the
younger group (when they are age 51 to 56) and the older group (when they are age 63 to 68), we
are comparing younger people in the bottom tenth of their cohort’s educational distribution with
older people in the bottom fifth of their cohort’s educational distribution. If outcomes are worse
for those with limited education, these differences between the two cohorts could obscure any
declines in outcomes that occur with age.
In 1999, our sample of respondents born between 1937 and 1939 ranges from age 60 to
62, and in 2001 it ranges from 62 to 64. Because one of our goals is to measure how the
availability of Social Security retirement benefits at age 62 affects economic well-being,
grouping some 62-year-old Social Security recipients with adults a few years younger may
understate financial problems at age 60 and 61, and grouping other adults who turned 62 during
9
Retirement Policy Program
the calendar year (and thus were not eligible for Social Security during the entire income
reporting period) with adults a few years older may understate the protection that Social Security
offers. We deal with this complication by excluding 62-year-old respondents from the 1999 and
2001 estimates.
In addition to computing hardship rates, we compute mean income by source (earnings,
employer-sponsored pensions, Social Security, other government transfers, capital income, and
other) for this cohort over time, to examine how income sources change as people approach
retirement. We also focus on economic outcomes near the bottom of the income distribution by
computing mean income for all adults between the 20th and 30th percentiles of the overall
distribution and then for those without a high school diploma, who face high risks of economic
hardship.
Another set of tabulations examines how hardship rates for this cohort vary by health
status and employment transitions. To measure employment transitions accurately, these tables
are based on samples that are restricted to those who respond to the survey at every wave until
age 62 (or until they die, if they do not survive to age 62). If we instead categorize workers who
respond to only two interviews as consistently working until age 62, for example, we could bias
our estimates.
The final piece of descriptive analysis computes the share of adults in the 1937 to 1939
cohort who do not meet our most stringent criterion for financial hardship in 1991 (at age 52 to
54) and who subsequently experience financial hardship before age 62. We examine how the
likelihood of falling into financial hardship varies by gender, race, education, baseline marital
status, baseline income, disability status, labor market conditions, and job layoffs. The table also
Financial Hardship before and after Social Security Eligibility
10
reports the share of adults working full-time at baseline who subsequently experience financial
hardship by age 62.
Models
The last set of analyses estimates multivariate models of the likelihood of falling into financial
hardship. We create a person-year database from 1992 to 2006 of HRS respondents born
between 1931 and 1941, and create an indicator of whether the respondent experiences financial
hardship (defined as own and spousal income below 100 percent of the official poverty level) in
the next wave, conditional on not being in financial hardship in the current wave. We use this
measure as the dependent variable in a probit model estimated on the pooled sample of 46,060
observations. We also estimate the models separately for men and women. The independent
variables in the model include gender, race, education, marital status, health status, spousal
characteristics (education, race, and health status), and age dummies. The models also interact
the age dummies with health status and interact education with health status.
Results
Financial hardship rates in 2005 are significantly higher among adults not quite old enough to
qualify for Social Security retirement benefits than those eligible for Social Security. About 11
percent of adults age 60 to 62 receive own and spousal incomes that fall below the federal
poverty level, compared with about 8 percent of those age 63 to 65 (table 1). The decline in the
hardship rate after age 62 likely reflects the availability of Social Security retirement benefits.
Although nearly all Americans qualify for Social Security at age 62, virtually none of the 62-
11
Retirement Policy Program
Table 1. Share of Older Americans Experiencing Financial Hardship, by Age and Other Characteristics, 2005
Age
52-55
56-59
60-62
63-65
66-68
Percentage with Household Income below the Federal Poverty Level
9.5
9.8
11.1
8.1**
8.5*
Gender
Men
Women
7.8
11.0
6.8
12.6
9.2
12.9
5.4**
10.7
5.0**
11.5
Race and Ethnicity
African American
Hispanic
Non-Hispanic white, other
21.7
23.9
6.2
26.2
23.8
6.6
26.1
34.0
6.9
22.6
25.0
5.1
28.4
34.5
4.4**
Education
Did not complete high school
High school graduate
College graduate
29.5
8.6
4.5
31.0
9.2
3.2
31.3
8.6
4.8
22.7**
5.8*
1.6*
22.2**
6.0
2.0*
Marital Status
Married
Not married
4.6
24.7
4.5
25.7
5.0
27.1
3.6
19.6**
3.3*
21.1
Health Status
Problem that limits work
No work-limiting problem
25.3
5.4
22.3
5.6
20.8
6.9
15.7*
4.8*
16.0
5.3
All
Percentage with Household Income below 125% of the Federal Poverty Level
All
12.1
12.5
14.4
12.4
14.2
Gender
Men
Women
10.7
13.5
9.6
15.2
12.0
16.7
9.2
15.4
9.9
17.8
Race and Ethnicity
African American
Hispanic
Non-Hispanic white, other
25.7
29.6
8.3
30.7
26.7
9.1
33.8
35.5
9.9
26.8
35.7
8.9
36.2
47.7
9.2
Education
Did not complete high school
High school graduate
College graduate
38.5
11.0
5.5
37.1
12.2
3.9
38.0
12.0
5.9
32.6
9.7
2.2
33.5
11.2
2.9
Marital Status
Married
Not married
6.5
29.8
6.7
29.9
7.5
32.7
6.3
28.1
6.3
32.9
Health Status
Problem that limits work
No work-limiting problem
33.0
6.8
28.0
7.3
26.1
9.4
24.0
7.3
25.9
9.1
2,074
1,905
1,353
2,036
2,015
Number of observations
Source: Authors’ computations from the 2006 HRS.
Note: Estimates for all age groups use poverty thresholds for households younger that 65. Marital status and health
status are measured in 2006. Asterisks indicate that estimates differ significantly from the age-60-to-62 estimates
(* .05 < p < .1, ** p < .05).
Financial Hardship before and after Social Security Eligibility
12
year-olds in our 2005 sample receive benefits for the entire calendar year, because payments do
not generally begin until two months after one turns 62 (Olson 1999). Hardship rates are
somewhat lower at age 52 to 55 and at age 56 to 59 than at age 60 to 62, but the differences are
not statistically significant. Hardship rates in the fifties and sixties are especially high among
African Americans, Hispanics, people who did not complete high school, and unmarried adults.
Additionally, adults with work-limiting health problems are much more likely than those in good
health to receive low incomes, and women are more likely than men.
When we use a broader definition of financial hardship––income below 125 percent of
the federal poverty level––the difference in the hardship rate at age 60 to 62 and age 63 to 65
narrows and becomes statistically insignificant. About 14 percent of adults age 60 to 62 have
own and spousal incomes that falls below 125 percent of the federal poverty level, compared
with about 12 percent of those age 63 to 65. The hardship rate declines more modestly after age
62 under this more expansive definition than under the narrower definition considered above
because Social Security tends to keep beneficiary incomes just above the poverty level. It is less
effective at keeping people above 125 percent of the poverty level. Interestingly, hardship rates
are nearly 2 percentage points higher at age 66 to 68 than at age 63 to 65 under the 125 percent
of poverty definition, whereas observed rates are nearly identical at the two ages under the 100
percent of poverty definition. Hardship rates may increase at age 66 to 68 under the more
expansive definition because more people are retired and relying solely on Social Security at age
66 to 68 than at younger ages. Very few people fall into poverty when their earnings are replaced
by Social Security benefits, but some people end up with incomes near the poverty level. As
before, hardship rates under this broader measure are especially high among African Americans,
Hispanics, those who did not complete high school, and those with health problems.
13
Retirement Policy Program
Table 2. Trends in the Percentage of Adults Age 50 to 60 Experiencing Financial Hardship, 1991, 1997, and 2003
1991
Age 50 to 55
1997
2003
1991
Age 56 to 60
1997
2003
Percentage with Household Income below the Federal Poverty Level
8.7
9.5
9.6
10.8
11.5
10.9
Gender
Men
Women
6.3
10.8
7.0
11.6
8.6**
10.6
8.3
13.0
8.9
13.9
8.3
13.4
Race and Ethnicity
African-American
Hispanic
Non-Hispanic white, other
19.9
23.7
6.0
22.5
24.6
6.6
22.3
27.4
5.7
25.0
28.3
7.9
25.9
27.7
8.3
25.5
24.1
7.9
Education
Did not complete high school
High school graduate
College graduate
20.8
6.4
2.0
30.7**
7.1
3.0
39.1**
7.7
3.0
22.0
7.7
4.6
28.0**
8.5
2.8
31.5**
9.9*
2.3**
Marital Status
Married
Not married
5.1
20.8
5.7
20.0
5.5
21.5
5.9
26.3
6.7
26.2
5.4
26.4
Health Status
Problem that limits work
No work-limiting problem
22.2
5.7
25.3
5.6
24.7
5.6
24.2
6.6
25.5
7.0
23.5
5.3*
All
Percentage with Household Income below 125% of the Federal Poverty Level
All
11.1
11.6
11.9
14.0
14.8
13.6
Gender
Men
Women
8.3
13.6
9.2
13.7
10.5
13.2
11.1
16.6
11.2
18.0
9.8
17.0
Race and Ethnicity
African-American
Hispanic
Non-Hispanic white, other
24.4
30.8
7.8
24.4
28.7
8.6
25.2
31.0
7.7
32.7
32.8
10.5
33.6
33.0
10.8
31.4
28.2
10.0
Education
Did not complete high school
High school graduate
College graduate
26.6
8.3
2.3
36.4**
8.9
3.8
44.3**
10.2*
3.8
29.3
9.8
5.4
33.9*
11.7
3.6
37.5**
12.2
3.9
Marital Status
Married
Not married
6.9
25.4
7.4
23.3
6.3
28.1
8.3
32.2
9.2
31.6
7.2
31.2
Health Status
Problem that limits work
No work-limiting problem
27.7
7.4
28.7
7.4
30.8
6.9
30.2
9.0
33.2
8.8
27.8
7.2**
5568
3310
3380
4051
3976
Number of observations
2338
Source: Authors’ computations from the 1992, 1998, and 2004 HRS.
Note: Estimates for all age groups use poverty thresholds for households younger than 65. Marital status and health
status are measured in the following year. Asterisks indicate that estimates differ significantly from 1991 estimates
(* .05 < p < .1, ** p < .05).
Financial Hardship before and after Social Security Eligibility
14
Trends in Hardship Rates
There is not an obvious trend in hardship rates from 1991 to 2003 among all adults age 50 to 55
or all adults age 56 to 60 (table 2). Under the strict measure, financial hardship rates increase
somewhat for the younger group, from 8.7 percent in 1991 to 9.6 percent in 2003, but these
differences are not statistically significant. For the older age group, they fluctuate from 10.8
percent in 1991 to 11.5 percent in 1997 to 10.9 percent in 2003. However, hardship rates among
adults who did not complete high school increase sharply over the period for both age groups,
especially for the younger group. Among adults age 50 to 55 who lacked a high school diploma,
hardship rates nearly double between 1991 and 2003, increasing from about 21 to 39 percent.
Although this trend likely reflects eroding job market opportunities for less skilled workers
(Goldin and Katz 2007), it probably also reflects changes over time in educational attainment.
The share of adults in their fifties who did not complete high school fell sharply from 1991 to
2003 (Mermin, Johnson, and Murphy 2007). As a result, people in their fifties without high
school diplomas represent a relatively more disadvantaged segment of the population in 2003
than in 1991.
Tracking Hardship Rates for the 1937–39 Birth Cohort
For a better understanding of how hardship evolves as people age from their early fifties to their
early sixties and beyond, table 3 shows how the share of adults born between 1937 and 1939
with limited income changes over time. Because we are concerned about how the availability of
Social Security affects financial hardship, the analysis excludes respondents when they are age
62, because they can receive Social Security benefits for only part of the observed calendar year
(either 1999 or 2001).
15
Retirement Policy Program
Table 3. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by Year
1991
1993
1995
1997
1999
2001
2003
2005
National Poverty Rate, all ages
14.2
15.1
13.8
13.3
11.9
11.7
12.5
12.6
Age Range, 1937-1939 Cohort
52-54
54-56
56-58
58-60
60-61
63-64
64-66
66-68
9.5**
8.5**
Percentage with Household Income below the Federal Poverty Level
9.2**
9.5**
9.7**
12.1
12.3
10.4
Gender
Men
Women
6.7
11.6**
7.7
11.3**
7.4
11.9**
8.8
15.1
8.7
15.6
6.6
13.5
6.1*
12.6*
5.1**
11.5**
Race and Ethnicity
African American
Hispanic
Non-Hispanic white, other
19.9
25.8*
6.5*
19.6
27.6
6.9
20.7
31.3
6.5*
24.6
30.9
8.8
25.7
34.1
8.5
21.6
33.9
6.7
24.4
32.4
6.2**
27.8
32.0
4.6**
Education
Did not complete high school
High school graduate
College graduate
22.6**
6.3**
1.9
24.7*
6.7
1.1
25.4*
6.2**
1.8
29.3
8.5
3.0
30.8
8.7
1.9
24.1*
7.4
3.5
22.5**
7.4
1.7
22.3**
5.7**
2.2
Marital Status, 2000
Married
Not married
6.7
19.5**
6.9
19.4**
6.4
21.4**
8.0*
25.2
6.3
28.7
6.1
23.4
5.8
21.5**
4.9
20.4**
All
Percentage with Household Income below 125% of the Federal Poverty Level
All
11.6**
12.0**
12.3**
15.5
15.5
14.6
14.3
14.5
Gender
Men
Women
8.8*
14.2**
9.5
14.3**
9.9
14.6**
11.2
19.4
11.3
19.3
9.3
19.1
10.8
17.4
10.6
17.9
Race and Ethnicity
African-American
Hispanic
Non-Hispanic white, other
25.7**
31.2
8.1**
23.5**
34.2
8.9*
24.4**
35.8
8.8*
33.2
36.8
11.4
33.8
37.9
11.0
29.1
42.3
10.1
33.7
39.5
10.3
37.5
46.2
9.5
Education
Did not complete high school
High school graduate
College graduate
27.8**
8.1**
2.6
28.5**
9.3*
1.5
31.8
8.2**
1.8
36.5
11.3
3.5
36.5
11.7
2.6
31.3
11.6
4.4
32.8
11.5
2.6
34.6
11.1
3.0
Marital Status, 2000
Married
Not married
8.6
23.4**
8.9
23.7**
8.7
25.3**
10.5*
31.4
8.3
34.9
8.9
32.2
9.1
31.0
8.8
33.2
Number of observations
2830
2520
2394
2287
1439
1378
2035
1926
Source: Authors’ computations from the 1992–2006 waves of the HRS.
Note: Estimates for all age groups use poverty thresholds for households younger than 65. The 1999 and 2001
samples exclude respondents age 62. Asterisks indicate that estimates differ significantly from 1999 estimates
(* .05 < p < .1, ** p < .05).
Financial Hardship before and after Social Security Eligibility
16
Under our strict definition (income less than 100 percent of the poverty level), the overall
hardship rate increases steadily as the cohort moves from the early fifties to early sixties,
growing from 9.2 percent at age 52 to 54 to 12.3 percent at age 60 to 61, a relative increase of
roughly one-third. The pattern reverses after age 62, when people qualify for Social Security
retirement benefits, with the hardship rate declining with age. It falls to 10.4 percent at age 63 to
64 and to 8.5 percent at age 66 to 68. These patterns are not simply artifacts of cyclical changes
in the overall poverty rate. Between 1991 and 1999, for example, the national poverty rate falls
from 14.2 to 11.9 percent, while hardship rates increase for our sample.
Hardship rates grow dramatically for people with limited education as they approach
Social Security’s early entitlement age. Among those who did not complete high school,
hardship rates increase from 22.6 percent at age 52 to 54 to 30.8 percent at age 60 to 61, a
relative increase of 36 percent. Hardship rates for those without a high school diploma then fall
to 24.1 percent at age 63 to 64 and to 22.3 percent at age 66 to 68. However, the share of college
graduates with incomes below the federal poverty level does not increase significantly as the
cohort approaches age 62, nor does it fall significantly after age 62. Hardship rates also grow
substantially from age 52 to 54 to age 60 to 61 for Hispanics (from 25.8 to 34.1 percent) and for
adults who were unmarried in 2000 (from 19.5 to 28.7 percent). These patterns suggest that some
older adults, particularly minorities, unmarried adults, and those with limited education, face
increasing financial difficulties as they approach old age, and that Social Security provides
important protections for those age 62 and older.3
3
Including 62-year-olds in the analysis somewhat reduces observed hardship rates in 1999 and somewhat increases
them in 2001. Expanding the sample in this way, however, does not change the pattern of rising hardship rates up to
age 61 and declining hardship rates thereafter. Details are available from the authors upon request.
17
Retirement Policy Program
Observed hardship rates also increase as the 1937–39 birth cohort approaches age 62
when we consider a less strict definition (income less than 125 percent of the poverty level).
Between age 52 to 54 and age 60 to 61, the share of adults with incomes less than 125 percent of
the poverty level increases by about one-third, from 11.6 to 15.5 percent. Under this more
expansive measure, hardship rates increase significantly in the years before Social Security’s
early retirement age for many population groups, including African Americans, non-Hispanic
whites, unmarried adults, women, men, high school graduates without a Bachelor’s degree, and
those who did not complete high school. However, rates do not decline significantly after age 62,
falling only to 14.3 percent at age 64 to 66 and then increasing slightly to 14.5 percent at age 66
to 68.
Changing Sources of Income before and after Age 62
To explore how income falls as people approach age 61, table 4 shows how real mean household
income from various sources (expressed in constant 20005 dollars) changes over time. Not
surprisingly, real earnings decline sharply as the 1937 to 1939 birth cohort ages from their early
fifties to their early sixties. Between age 52 to 54 and age 60 to 61, real mean earnings fall by
more than $14,000 (from about $36,000 to about $22,000). Real mean spouse earnings fall by
about another $9,000. This $23,000 shortfall is almost completely offset by increases in capital
income (which partly reflect the strong investment environment in 1999), pension income, and
(to a lesser extent) Social Security, most of which comes from older spouses collecting
retirement incomes. As a result, real mean household income is nearly identical at age 52 to 54
and age 60 to 61. Mean income falls by about $12,000 between age 60 to 61 and age 63 to 64, as
Financial Hardship before and after Social Security Eligibility
18
Table 4. Real Mean Household Income for Adults Born between 1937 and 1939, by Year (2005 Dollars)
Age Range
1991
1993
1995
1997
1999
2001
2003
2005
52-54
54-56
56-58
58-60
60-61
63-64
64-66
66-68
All Adults
Total
Respondent Earnings
Spouse Earnings
Pensions
Social Security
Unemployment/Gov Transfers
Capital Income
Other Income
Number of Observations
$77,715
36,256
24,036
1,954
1,167
1,512
9,355
3,435
**
**
**
**
**
2830
$82,663
33,591
21,827
4,133
1,445
1,295
16,377
3,995
**
**
**
**
**
2520
$81,152
28,464
18,784
4,810
2,163
1,601
23,449
1,881
$77,433
21,728
15,075
7,143
3,814
1,576
23,413
4,683
$65,512
16,008
8,544
8,353
11,284
1,285
18,192
1,846
2287
1439
1378
$30,681
12,408
4,336
4,480
3,773
1,129
4,070
485
$29,888
12,342
3,307
5,179
4,527
764
3,251
518
$26,511
6,692
1,466
3,985
10,434
495
3,169
270
248
223
149
143
$37,920
12,340
10,756 *
1,967
3,106 **
1,164
8,009
578
$39,207
11,294
7,997
2,179
3,822 *
1,336
10,394
2,185 **
615
580
**
**
**
**
*
2394
$80,267
26,447 *
15,912
5,645 **
3,001 **
1,596
23,395
4,271
**
**
**
**
*
*
$70,198
12,241
9,102
9,441
14,553
1,272
17,367
6,223
*
**
**
**
**
**
2035
$67,397
8,879
6,652
10,841
17,084
1,263
15,392
7,285
**
**
**
**
**
1926
Adults in the 20th - 30th Percentiles of Income
Total
Respondent Earnings
Spouse Earnings
Pensions
Social Security
Unemployment/Gov Transfers
Capital Income
Other Income
Number of Observations
$35,538
19,231
8,306
2,109
2,402
1,284
1,424
782
**
**
**
**
**
**
293
$34,994
17,495
6,953
3,727
2,370
1,151
2,549
749
**
**
**
**
259
$34,445 **
13,706
4,954
3,689
3,955
965
6,558 **
617
*
**
*
**
$27,348
4,183 **
1,952
4,838
13,395 **
734
1,918 *
328
211
$25,160
1,756
741
3,950
14,965
953
2,677
118
**
**
**
**
195
Adults who Did Not Complete High School
Total
Respondent Earnings
Spouse Earnings
Pensions
Social Security
Unemployment/Gov Transfers
Capital Income
Other Income
Number of Observations
$42,308
17,852
13,727
713
1,741
1,672
5,643
960
**
**
**
**
*
745
$38,261
14,808
12,344
1,482
2,189
1,550
5,009
878
**
**
**
**
*
623
$38,517
10,017
8,408
2,847
4,697
1,131
10,839
577
363
$40,034
8,112
4,667 **
3,720
10,645 **
815
10,079
1,996
349
$36,613
5,022
5,055
4,120
12,897
719
7,903
898
**
**
*
**
517
$36,624
4,155 **
4,106 **
3,748
14,446 **
755
8,450
965
477
Adults who Did Not Complete High School in the 20th - 30th Percentiles of Income
Total
Respondent Earnings
Spouse Earnings
Pensions
Social Security
Unemployment/Gov Transfers
Capital Income
Other Income
Number of Observations
$14,566
5,664
1,312
697
4,870
1,410
363
249
78
**
**
*
**
$13,534
4,303
1,271
776
3,802
2,464
483
435
59
**
*
**
*
$12,212 **
2,716
391
369
6,024
902
1,505
305
58
$10,773
1,967
617
908 *
5,254
547
1,207
272
52
$10,417
2,566
483
135
5,835
581
815
3
37
$12,770 **
1,329
0 *
347
10,147 **
400
325
221
40
$12,879
1,018
181
243
10,684
435
88
231
**
*
**
*
$12,769
75
235
390
11,495
238
324
12
53
**
**
**
*
48
Source: Authors' estimates from the 1992–2006 waves of the Health and Retirement Study
Notes: The 20th-30th percentile for adults who did not complete high school refers to the income distribution for the less-than-high-school group.
The 1999 and 2001 samples exclude respondents age 62. Asterisks indicate that amounts differ significantly from those for 1999
(* .05 < p < .1, ** p < .05).
19
Retirement Policy Program
own and spouse earnings plunge by another $12,000, capital income falls by $5,000, and Social
Security increases by less than $8,000.
Mean household income for people at the lower end of the income distribution falls as
they approach age 62, because increases in capital income, pension income, and Social Security
are not sufficient to offset the loss in earnings. For those without a high school diploma, mean
own and spouse earnings falls by about $13,000 between age 52 to 54 and age 60 to 61, while
mean household income falls by $4,000, a 9 percent decline. Over the same period, mean
household income for people between the 20th and 30th percentiles of the income distribution
falls by $6,000, or 16 percent. And among adults who did not complete high school in the 20th to
30th percentile of the non-high-school-graduate income distribution, mean household income
falls by 28 percent as the cohort ages from the early fifties to the early sixties. Their losses are so
large because they experience virtually no increases in capital income, pension income, or Social
Security to offset the decline in earnings as they grow older. However, these low-income groups
do not experience very large income declines after age 62, because Social Security replaces a
relatively large fraction of their earnings. For example, among those between the 20th and 30th
percentiles of the income distribution, household Social Security income at age 63 to 64 equals
38 percent of own and spouse earnings at age 52 to 54, compared with only 19 percent for adults
at all income levels. For those adults without a high school diploma who fall between the 20th
and 30th percentiles of the non-high-school-graduate income distribution, mean household
income is higher at age 63 to 64 than at age 60 to 61.
Financial Hardship before and after Social Security Eligibility
20
Hardship Rates and Employment Transitions
Because earnings losses appear to account for much of the increase in economic hardship
experienced by people in their late fifties and early sixties, we examine employment transition
patterns in the years preceding age 62 for the 1937 to 1939 birth cohort.4 A third of the sample
works full-time consistently from age 53 to 62 (table 5). Nearly another quarter (22.2 percent)
works full-time at age 53 to 55, reduces their labor supply before age 62 (moving to part-time
work or no work), and never returns to full-time work. About two-thirds of this group (or 14.5
percent of the entire sample) moves directly from full-time work to no work, and never works
again before age 62. The other third (or 7.9 percent of the entire sample) moves to part-time
work before age 62. One-quarter of the full sample works intermittently (working part-time or
moving in and out of employment), and the remaining fifth never work between their early fifties
and age 62.5
Health problems that limit work are quite prevalent among early retirees and those who
never work. Nearly three-quarters of those who never work and slightly more than half (51.7
percent) of those who move directly out of the labor force from full-time work (and never return
to work) report health problems that limit their work ability between age 53 and 62, compared
with about a third of intermittent workers and about a sixth of consistent full-time workers. More
than a quarter of early retirees and intermittent workers are displaced from their jobs (through
layoffs or business closures) at some point between age 53 and 62.
4
Patterns are quite similar when we examine the larger cohort born between 1937 and 1941.
5
Our estimates of work transitions are based only on work status observed at the time of the survey interviews.
Respondents who change work status between the interviews but then revert to their old status at the time of the
interview are not counted as having made a transition.
21
Retirement Policy Program
Table 5. Size and Characteristics of Labor Force Transition Groups, Adults Born between 1937 and 1939
Work Full-Time in 1992
All
Share of Population
Continue Through
Age 62
Move Directly to
Zero Hours Before
62
100.0
33.3
14.3
Gender
Female
Male
52.0
48.0
35.3
64.7
43.7 **
56.3 **
Education
Did Not Complete High School
High School Graduate
College Graduate
21.5
60.3
18.2
17.4
59.3
23.3
Race and Ethnicity
African American
Hispanic
Non-Hispanic White, Other
9.6
6.9
83.4
1992 Marital Status
Unmarried
Married
Move to Part-Time
Work Before 62, Never
Return to FT
Never Work
25.4
19.1
49.0 **
51.0 *
66.1 **
33.9 **
70.0 **
30.0 **
21.7
56.2
22.1
12.5
67.8
19.7
20.1
63.2
16.7 **
34.2 **
57.9
7.9 **
7.3
5.2
87.6
9.7
7.0
83.2
*
9.8
9.1
81.2
9.5
7.5 *
83.0 **
13.9 **
8.4 **
77.8 **
21.6
78.4
20.4
79.6
29.6 **
70.4 **
20.4
79.6
17.8
82.2
23.1
76.9
Laid Off before 62
No
Yes
82.1
17.9
89.4
10.6
71.0 **
29.0 **
74.2 **
25.8 **
71.1 **
28.9 **
95.7 **
4.3 **
Health Limits Work before 62
No
Yes
60.4
39.6
84.1
15.9
48.3 **
51.7 **
56.4 **
43.6 **
62.3 **
37.7 **
27.0 **
73.0 **
Health Limits Work or Laid Off
before 62
No
Yes
48.9
51.1
75.0
25.0
32.8 **
67.2 **
43.2 **
56.8 **
43.2 **
56.8 **
25.1 **
74.9 **
2080
669
294
159
526
432
Number of observations
7.9
Intermittent
Workers
*
*
Source: Authors' estimates from the 1992–2006 waves of the Health and Retirement Study.
Note: The sample is restricted to respondents who were interviewed in 1992 and completed each interview through age 62 or until they died. Asterisks
indicate that percentages differ significantly from those for adults working full-time through age 62 (* .05 < p < .1, ** p < .05).
Financial Hardship before and after Social Security Eligibility
22
Table 6 reports how hardship rates vary by health problems and job layoffs as adults in
the 1937 to 1939 birth cohort age from their early fifties to late sixties. Estimates in the table are
based on the strict definition of hardship (income below 100 percent of the poverty level).
Hardship rates at age 60 to 61 reach about 13 percent for those who are laid off from a job before
age 62, 7 percentage points higher than the rate that prevails at age 52 to 54. About 22 percent of
adults who report at some point between 1992 and 2000 that health problems limit their work
ability experience financial hardship, 5 percentage points higher than at age 52 to 54. Health
problems boost hardship rates just before Social Security’s early eligibility age most sharply for
people with limited education. Among those without a high school diploma who report a health
problem that limits their work ability before age 62, hardship rates grow from 32 percent at age
52 to 54 to 44 percent at age 60 to 61, a 12 percentage point increase. By contrast, hardship rates
do not increase significantly for college graduates who develop work disabilities or for those
who did not complete high school and do not report any work disabilities.
The share with incomes below 100 percent of the poverty level falls after age 62 for those
with work disabilities, especially those with limited education, another indication of the
important role that Social Security plays in protecting economic well-being for people with
limited means. For example, only 29 percent of adults with work disabilities who did not
complete high school report incomes below the poverty level at age 66 to 68, 15 percentage
points below the share with low incomes at age 60 to 61.
Financial hardship rates also increase with age—up to the Social Security early eligibility
age—for early retirees (table 7). Among people who work full-time in their early fifties, move
directly out of the labor force before age 62, and never work again, the share with incomes below
100 percent of the poverty level increases from about 3 percent at age 52 to 54 to 17 percent at
23
Retirement Policy Program
Table 6. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by Layoff Status, Health, Education, and Year
Age Range
Laid Off before Age 62
1991
1993
1995
1997
1999
2001
2003
2005
52-54
54-56
56-58
58-60
60-61
63-64
64-66
66-68
6.4 **
7.9 *
8.2 *
12.9
12.7
11.1
7.9 *
Health Limits Work before Age 62
17.2 **
16.6 **
18.0 *
20.2
22.4
18.7
17.3 **
14.3 **
Health Never Limits Work
Did Not Complete High School
High School Graduate
College Graduate
13.0
2.8
1.7
17.0
3.4
1.4
15.5
2.5 *
1.0
17.7
5.8
2.3
17.3
4.4
1.5
16.6
3.3
3.2
15.0
3.8
1.0
16.3
3.4
2.0
Health Limits Work before Age 62
Did Not Complete High School
High School Graduate
College Graduate
32.4 **
12.2
2.6
31.9 **
12.1
0.0
34.9 *
12.0
4.7
40.8
12.7
5.5
43.8
15.5
3.0
33.4 *
14.4
4.7
30.8 **
13.4
4.6
28.7 **
9.7 **
3.0
2287
1439
Number of observations
2830
2520
2394
1378
2035
8.9
1926
Source: Authors' estimates from the 1992–2006 waves of the Health and Retirement Study.
Notes: Financial hardshipis defined as having own and spousal income below 100 percent of the federal poverty level. Estimates for all age groups
use poverty thresholds for households younger than 65. The 1999 and 2001 samples exclude respondents age 62. Asterisks indicate that estimates
differ significantly from 1999 estimates (* .05 < p < .1, ** p < .05).
Financial Hardship before and after Social Security Eligibility
24
Table 7. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by Labor Force Transition and Year
1991
1993
1995
1997
1999
2001
2003
2005
52-54
54-56
56-58
58-60
60-61
63-64
64-66
66-68
Continue through Age 62
2.1
2.2
1.0
1.9
1.7
3.2
4.2 **
2.9
Move Directly to Zero Hours before
62
3.4 **
4.8 **
9.9 **
12.1
16.7
11.2
6.2 **
7.5 **
Move to Part-Time Work before 62,
Never Return to Full-Time W ork
3.8 *
4.5 *
4.2 *
5.7
10.5
5.1
7.3
4.0
8.5
Age Range
Worked Full-Time in 1992
Intermittent Work
10.6
10.7
8.6
12.1
9.8
10.4
7.8
Never Work
25.4
25.4
23.6
25.9
28.2
21.0
23.0
2080
2040
1994
1947
1234
1195
1719
Number of observations
18.0 **
1638
Source: Authors' estimates from the 1992–2006 waves of the Health and Retirement Study.
Notes: Financial hardship is defined as having own and spousal income below 100 percent of the federal poverty level. Estimates for all age groups
use poverty thresholds for households younger than 65. The sample is restricted to respondents who were interviewed in 1992 and completed each
interview through age 62 or until they died. The 1999 and 2001 samples exclude respondents age 62. Asterisks indicate that estimates differ
significantly from 1999 estimates (* .05 < p < .1, ** p < .05).
25
Retirement Policy Program
age 60 to 61. Hardship rates then decline for this group once they reach the early eligibility age,
falling to 6 percent at age 64 to 66. For people who move from full-time work to part-time work
before age 62, hardship rates increase from about 4 percent at age 52 to 54 to about 11 percent at
age 60 to 61. Hardship rates do not increase significantly as people approach age 62 for those
who work full-time until they reach the Social Security early eligibility age or who do not work
full-time in 1992 (when they are in their early fifties). Hardship rates are consistently low for
people who always work full time, and consistently high for those who never work after their
early fifties. However, hardship rates fall substantially after age 62 for those who never work.
Table 8 compares the evolution of hardship rates by employment transition, education,
and health. The share of adults with incomes below 100 percent of the poverty level does not
increase significantly among people who consistently work full-time through age 62, even for
those who develop health problems or those with limited education. It also does not increase
significantly among people who work intermittently or never work in their fifties, regardless of
their health and education. However, hardship rates increase sharply for early retirees with health
problems or limited schooling. For example, hardship rates for people without a high school
diploma who work full-time in 1992 and permanently left the labor force before age 62 grow
from about 9 percent at age 52 to 54 to 54 percent at age 60 to 61. During the same period,
hardship rates for early retirees increase by about 6 percentage points (to 9 percent) for high
school graduates and by about 14 percentage points (to 19 percent) for those who report health
problems that limit their ability to work. Hardship rates do not increase significantly for college
graduates who permanently leave the labor force before age 62.
The availability of Social Security retirement benefits at age 62 appears to improve
economic well-being substantially for people with limited education or health problems who
Financial Hardship before and after Social Security Eligibility
26
Table 8. Percentage of Adults Born between 1937 and 1939 Experiencing Financial Hardship, by Employment Status, Health,
Education, and Year
Age Range
1991
1993
1995
1997
1999
2001
2003
2005
52-54
54-56
56-58
58-60
60-61
63-64
64-66
66-68
Full-Time through Age 62
Health Limits W ork before Age 62
Did Not Complete High School
High School Graduate
College Graduate
1.3
6.9
1.4
0.0
Full-Time in 1992, Move Directly to
Zero Hours before 62
Health Limits W ork before Age 62
Did Not Complete High School
High School Graduate
College Graduate
5.1 **
8.8 **
2.7 *
0.0
1.6
7.7
0.8
2.0 *
0.0
2.6
1.0
0.0
0.0
2.9
2.4
0.0
0.8
5.3
1.4
0.0
5.7 **
15.7 **
2.6 *
0.0
14.3
32.1 **
3.9
4.6
12.8
33.6 **
7.0
5.1
19.0
53.8
8.6
5.2
4.8
9.5
2.2
0.5
4.6 *
10.6
4.2 **
0.0
2.8
10.8
2.0
0.0
15.3
24.1 **
7.9
7.5
8.9 **
19.5 **
2.5 *
3.6
10.4 *
18.3 **
2.9 *
9.2
Full-Time in 1992, Move to PartTime Work before 62
Health Limits W ork before Age 62
Did Not Complete High School
High School Graduate
College Graduate
7.6
17.1
2.6
0.0
6.3
14.6 *
4.0
0.0
3.9 **
10.2 **
4.3
0.0
6.4
28.7
3.2
0.0
16.6
39.0
7.3
0.0
6.8
30.9
1.7
0.0
3.5 **
23.4
5.5
2.7
2.5 **
13.3 *
3.6
0.0
Intermittent Workers
Health Limits W ork before Age 62
Did Not Complete High School
High School Graduate
College Graduate
17.1
24.0
8.0
4.8 *
14.6
26.8
8.5
0.3
14.6
22.3
5.8
2.9
19.9
26.5
9.5
4.3 *
17.0
23.0
7.7
0.0
17.3
24.2
8.4
4.8 *
14.1
20.1
5.8
1.8
12.8
20.4
6.2
2.9
Never Work
Health Limits W ork before Age 62
Did Not Complete High School
High School Graduate
College Graduate
30.7
41.9
18.1
8.6
31.2
44.3
18.0
0.0
29.6
41.3
16.9
0.0
32.1
45.1
18.8
0.0
35.4
44.1
23.0
0.0
27.2
38.5
14.1
0.0
30.6
35.7
19.7
2.8
25.0 *
33.1
13.1 *
0.0
2080
2040
1994
1947
1234
1195
1719
Number of observations
1638
Source: Authors' estimates from the 1992–2006 waves of the Health and Retirement Study.
Notes: Financial hardship is defined as having own and spousal income below 100 percent of the federal poverty level. Estimates for all
age groups use poverty thresholds for households younger than 65. The sample is restricted to respondents who were interviewed in 1992
and completed each interview through age 62 or until they died. The 1999 and 2001 samples exclude respondents age 62. Asterisks
indicate that estimates differ significantly from 1999 estimates (* .05 < p < .1, ** p < .05).
27
Retirement Policy Program
leave the labor force early. Among early retirees who move directly out of the labor force from
full-time work, for example, economic hardship rates fall by 34 percentage points between age
60 to 61 and age 64 to 66 for those who did not complete high school and by about 10 percentage
points for those with work disabilities.
Transitions into Economic Hardship
Table 9 shows the share of adults born between 1937 and 1939 who fall into financial hardship
(defined as income below the poverty level) before age 62. About 15 percent of all adults with
incomes above the poverty level at age 52 to 54, and 11 percent of full-time workers with
incomes above the poverty level, experience economic hardship before reaching the Social
Security early eligibility age. These high rates do not merely reflect small income losses by
adults with baseline incomes only slightly above the poverty level; 11 percent of adults and 9
percent of full-time workers with incomes exceeding 200 percent of the poverty level in 1991
experience a hardship spell before age 62. Financial hardship spells are particularly common for
adults with limited education, women, racial minorities, and unmarried adults. For example,
about one-third of Hispanics and adults without high school diplomas and more than one-quarter
of blacks and unmarried adults experience a pre-62 hardship spell. Health problems, employment
shocks, and early labor force withdrawals are also associated with income losses. Almost one in
four adults with health-related work limitations suffers hardship spells, compared with only 1 in
10 adults in good health. About one in five adults who works full-time in their early fifties and
moves directly out of the labor force before age 62 without any period of part-time work
experiences an economic hardship spell before age 62. Similarly, about 27 percent of adults who
never work after their early fifties (but do not experience financial hardship at age 52 to 54)
Financial Hardship before and after Social Security Eligibility
28
Table 9. Percentage of Adults Born between 1937 and 1939 Falling into Financial Hardship
Before Age 62, among Those Not in Financial Hardship in 1992
All Adults
Adults Working Full
Time in 1992
All
14.5
10.7
Gender
Female
Male
16.4 **
12.6
11.4
10.1
Education
Did Not Complete High School
High School Graduate
College Graduate
32.7 **
12.0 **
4.5
25.6 **
8.6 **
5.0
Race and Ethnicity
African American
Hispanic
Non-Hispanic White, Other
28.4 **
35.1 **
11.5
19.8 **
27.4 **
8.4
1992 Marital Status
Unmarried
Married
26.8 **
11.7
21.0 **
7.7
1991 Income as Percent of Poverty Line
100–124
125–149
150–199
200+
51.6 **
45.2 **
38.1 **
11.0
38.1 **
40.7 **
30.4 **
8.9
Laid Off before 62
No
Yes
13.9
17.4
9.6 **
15.2
Health Limits Work before 62
No
Yes
10.4 *
22.4
9.5 **
13.8
27.2 **
16.7 **
14.7 **
11.6 **
11.6 **
19.0 **
19.0 **
Labor Force Group
Never Work
W ork Intermittently
W ork Full-Time in 1992, Move to PartTime before 62
W ork Full-Time in 1992, Move Directly to
Zero Hours before 62
W ork Full-Time Through Age 62
Number of observations
5.0
5.0
2524
1666
Source: Authors' estimates from the 1992–2006 waves of the Health and Retirement Study.
Note: Financial hardship is defined as having income below the federal poverty level. The
sample is restricted to adults who are not in economic hardship in 1991. Asterisks indicate that
estimates differ significantly from those reported in the last row of each category
(* .05 < p < .1, ** p < .05).
29
Retirement Policy Program
experience a spell of economic hardship before age 62. By contrast, only 5 percent of adults
working full-time until age 62 experience hardship spells.
Finally, table 10 reports results from our multivariate models of falling into financial
hardship for adults born between 1931 and 1941. On average, adults face a 5.4 percent chance of
falling into hardship over a two-year period. Controlling for the overall poverty rate,
demographics, and health status, we find that the risk of experiencing financial hardship
increases significantly with age for adults in their fifties and early sixties and then declines after
age 62. Compared with people age 51 to 54, adults age 57 to 58 are about 1.3 percentage points
more likely to fall into hardship, and those age 59 to 61 are about 1.2 percentage points more
likely to fall into hardship. Adults age 62 and older are significantly less likely to experience
hardship than those in their fifties and early sixties. For men (reported in table 11), the risk of
falling into poverty peaks at age 59 to 61, whereas for women (reported in table 12) the risk
peaks at age 57 to 58, probably because many women are married to older men who qualify for
Social Security before their wives reach age 62.
As expected, health problems are important predictors of the likelihood of experiencing
financial hardship. People who report health-related work limitations are about 4.3 percentage
points more likely to fall into hardship than those who do not report health problems. The health
impact is larger for those who did not complete high school than for high school graduates. And
age has a larger effect on poverty risks for people who develop health problems than for those
who do not.
The estimated effects of other demographic variables are not surprising. African
Americans and Hispanics are much more likely to experience financial hardship at older ages
than non-Hispanic whites, even after other factors are controlled for. Hardship rates decline as
Financial Hardship before and after Social Security Eligibility
30
Table 10. Marginal Impact of Personal Characteristics on the Probability of Falling into Financial Hardship, Age 51–73
Baseline Specification
Marginal
Standard
Effect
Error
Age, Wave t
[Ref: 51-54]
55-56
57-58
59-61
62-64
65-66
67-68
69+
…
0.0084
0.0129
0.0121
-0.0005
-0.0066
-0.0152
-0.0076
Including Education and
Health Interactions
Marginal
Standard
Effect
Error
*
***
**
…
0.0040
0.0040
0.0036
0.0034
0.0034
0.0030
0.0034
…
0.0084
0.0129
0.0122
-0.0005
-0.0066
-0.0153
-0.0075
Male
-0.0046 ***
Race and Ethnicity
African American
Hispanic
[Ref: White or other]
Including Age and
Health Interactions
Marginal
Standard
Effect
Error
*
***
**
…
0.0040
0.0041
0.0036
0.0034
0.0035
0.0030
0.0034
…
0.0050
0.0058
0.0093 ***
-0.0001
-0.0045
-0.0147 ***
-0.0066 *
…
0.0043
0.0041
0.0038
0.0038
0.0041
0.0031
0.0036
0.0016
-0.0046 ***
0.0016
-0.0045 ***
0.0016
0.0403 ***
0.0445 ***
…
0.0045
0.0064
…
0.0405 ***
0.0447 ***
…
0.0045
0.0065
…
0.0404 ***
0.0444 ***
…
0.0045
0.0065
…
Education
Not high school graduate
[Ref: high school graduate]
College graduate
0.0306 ***
…
-0.0170 ***
0.0026
…
0.0021
0.0272 ***
…
-0.0172 ***
0.0031
…
0.0021
0.0272 ***
-0.0173 ***
0.0031
…
0.0021
Health Limitations
Limitation at wave t
Limitation at wave t+1 , but not t
Limitation at wave t , but not t+1
0.0431 ***
0.0314 ***
-0.0131 ***
0.0028
0.0041
0.0023
0.0392 ***
0.0316 ***
-0.0130 ***
0.0034
0.0041
0.0023
0.0309 ***
0.0314 ***
-0.0130 ***
0.0053
0.0041
0.0023
Current Health Limitation and Not
High School Graduate
…
…
0.0068 *
0.0038
0.0071 *
0.0038
…
…
…
…
…
…
…
…
…
…
…
…
…
…
…
0.0118
0.0242 ***
0.0099 *
0.0007
-0.0042
0.0079
0.0086
0.0058
0.0050
0.0057
**
***
***
Age and Health Limitation (wave t ) Interactions
55-56 * Health Limitation
…
57-58 * Health Limitation
…
59-61 * Health Limitation
…
62-64 * Health Limitation
…
65-66 * Health Limitation
…
**
***
***
Marital Status
Married at wave t
Married at wave t+1 , not at t
Married at wave t , divorced at t+1
Married at wave t , widowed at t+1
-0.0668
-0.0226
0.1269
0.1153
***
***
***
***
0.0041
0.0030
0.0191
0.0130
-0.0670
-0.0226
0.1270
0.1157
***
***
***
***
0.0042
0.0030
0.0191
0.0130
-0.0673
-0.0227
0.1260
0.1156
***
***
***
***
0.0042
0.0030
0.0190
0.0130
Spouse Characteristics
African American
Hispanic
Not high school graduate
College graduate
Health limitation at wave t
-0.0035
0.0102
0.0214
-0.0088
0.0126
**
***
***
***
0.0033
0.0051
0.0030
0.0030
0.0026
-0.0034
0.0106
0.0215
-0.0089
0.0126
**
***
***
***
0.0033
0.0051
0.0030
0.0030
0.0026
-0.0033
0.0109
0.0216
-0.0088
0.0127
**
***
***
***
0.0034
0.0052
0.0030
0.0030
0.0026
0.0008
0.0007
0.0008
0.0007
National Poverty Rate, Wave t+1
0.0007
0.0008
Mean Likelihood of Falling into
Financial Hardship
0.055
0.055
0.055
Mean Predicted Likelihood of
Falling into Financial Hardship
N
Pseudo R2
0.032
46,060
0.160
0.032
46,060
0.160
0.032
46,060
0.161
Source: Authors' estimates from 1992–2006 waves of the Health and Retirement Study (HRS).
Notes: The table reports results from a probit model of the probabilty of having own and spousal income below the poverty level at
wave t+1 , conditional on having income above the poverty level at wave t . Estimates are based on a sample of person-year
observations for adults born between 1931 to 1941 whose income is measured every other year from 1993 to 2005. Asterisks
indicate statistically significant effects (* .05 < p < .10; ** .01 < p < .05; *** p <.01).
31
Retirement Policy Program
Table 11. Marginal Impact of Personal Characteristics on the Probability of Falling into Financial Hardship,
Men Age 51–73
Baseline Specification
Marginal
Standard
Effect
Error
Including Education and
Health Interactions
Marginal
Standard
Effect
Error
Including Age and
Health Interactions
Marginal
Standard
Effect
Error
Age, Wave t
[Ref: 51-54]
55-56
57-58
59-61
62-64
65-66
67-68
69+
…
0.0079
0.0114 **
0.0162 ***
0.0025
-0.0069
-0.0105 ***
-0.0048
…
0.0055
0.0055
0.0053
0.0048
0.0045
0.0043
0.0049
…
0.0079
0.0117 **
0.0164 ***
0.0024
-0.0070
-0.0107 ***
-0.0048
…
0.0055
0.0056
0.0053
0.0048
0.0045
0.0044
0.0049
Race and Ethnicity
African American
Hispanic
[Ref: White or other]
0.0295 ***
0.0439 ***
…
0.0072
0.0097
…
0.0300 ***
0.0450 ***
…
0.0072
0.0099
…
0.0297 ***
0.0444 ***
…
0.0072
0.0099
…
Education
Not high school graduate
[Ref: high school graduate]
College graduate
0.0233 ***
…
-0.0096 ***
0.0034
…
0.0029
0.0157 ***
…
-0.0101 ***
0.0038
…
0.0029
0.0155 ***
-0.0102 ***
0.0038
…
0.0029
Health Limitations
Limitation at wave t
Limitation at wave t+1 , but not t
Limitation at wave t , but not t+1
0.0396 ***
0.0314 ***
-0.0131 ***
0.0040
0.0041
0.0023
0.0304 ***
0.0316 ***
-0.0130 ***
0.0045
0.0041
0.0023
0.0214 ***
0.0314 ***
-0.0130 ***
0.0070
0.0041
0.0023
Current Health Limitation and Not
High School Graduate
…
…
0.0176 ***
0.0065
…
…
…
…
…
…
…
…
…
…
Age and Health Limitation (wave t ) Interactions
55-56 * Health Limitation
…
57-58 * Health Limitation
…
59-61 * Health Limitation
…
62-64 * Health Limitation
…
65-66 * Health Limitation
…
…
0.0020
0.0054
0.0120 **
0.0035
-0.0031
-0.0101 **
-0.0038
…
0.0057
0.0057
0.0055
0.0054
0.0057
0.0045
0.0051
0.0191
0.0067
…
…
…
…
…
0.0221
0.0218 *
0.0132
-0.0012
-0.0088
0.0135
0.0119
0.0085
0.0064
0.0065
Marital Status
Married at wave t
Married at wave t+1 , not at t
Married at wave t , divorced at t+1
Married at wave t , widowed at t+1
-0.0511
-0.0238
0.0616
0.0329
***
***
***
**
0.0062
0.0023
0.0190
0.0150
-0.0515
-0.0240
0.0611
0.0323
***
***
***
**
0.0062
0.0023
0.0189
0.0150
-0.0519
-0.0241
0.0594
0.0322
***
***
***
**
0.0062
0.0023
0.0188
0.0150
Spouse Characteristics
African American
Hispanic
Not high school graduate
College graduate
Health limitation at wave t
-0.0022
0.0044
0.0227 ***
-0.0098 ***
0.0121 ***
0.0049
0.0060
0.0041
0.0036
0.0033
-0.0019
0.0051
0.0226 ***
-0.0102 ***
0.0121 ***
0.0049
0.0061
0.0041
0.0036
0.0033
-0.0019
0.0053
0.0228 ***
-0.0101 ***
0.0122 ***
0.0050
0.0062
0.0041
0.0036
0.0033
National Poverty Rate, Wave t+1
-0.0001
0.0011
-0.0001
0.0011
-0.0001
0.0011
Mean Likelihood of Falling into
Financial Hardship
Mean Predicted Likelihood of
Falling into Financial Hardship
N
Pseudo R2
0.043
0.043
0.043
0.027
21,652
0.142
0.027
21,652
0.143
0.027
21,652
0.146
Source: Authors' estimates from 1992–2006 waves of the Health and Retirement Study (HRS).
Notes: The table reports results from a probit model of the probabilty of having own and spousal income below the poverty level at
wave t+1 , conditional on having income above the poverty level at wave t . Estimates are based on a sample of person-year
observations for men born between 1931 to 1941 whose income is measured every other year from 1993 to 2005. Asterisks indicate
statistically significant effects (* .05 < p < .10; ** .01 < p < .05; *** p <.01).
Financial Hardship before and after Social Security Eligibility
32
Table 12. Marginal Impact of Personal Characteristics on the Probability of Falling into Financial Hardship,
Women Age 51–73
Baseline Specification
Marginal
Standard
Effect
Error
Age, Wave t
[Ref: 51-54]
55-56
57-58
59-61
62-64
65-66
67-68
69+
…
0.0089
0.0146
0.0088
-0.0033
-0.0065
-0.0194
-0.0101
Including Education and
Health Interactions
Marginal
Standard
Effect
Error
***
**
…
0.0057
0.0059
0.0050
0.0048
0.0052
0.0042
0.0049
…
0.0089
0.0146
0.0088
-0.0033
-0.0065
-0.0194
-0.0101
Race and Ethnicity
African American
Hispanic
[Ref: White or other]
0.0474 ***
0.0460 ***
…
Education
Not high school graduate
[Ref: high school graduate]
College graduate
Health Limitations
Limitation at wave t
Limitation at wave t+1 , but not t
Limitation at wave t , but not t+1
Including Age and
Health Interactions
Marginal
Standard
Effect
Error
***
**
…
0.0057
0.0059
0.0050
0.0048
0.0052
0.0042
0.0049
…
0.0073
0.0065
0.0071
-0.0035
-0.0056
-0.0188 ***
-0.0092 *
…
0.0063
0.0061
0.0054
0.0053
0.0060
0.0043
0.0050
0.0059
0.0088
…
0.0474 ***
0.0460 ***
…
0.0059
0.0088
…
0.0475 ***
0.0458 ***
…
0.0059
0.0088
…
0.0375 ***
…
-0.0249 ***
0.0039
…
0.0028
0.0381 ***
…
-0.0249 ***
0.0047
…
0.0028
0.0382 ***
…
-0.0249 ***
0.0047
…
0.0028
0.0474 ***
0.0418 ***
-0.0154 ***
0.0041
0.0063
0.0035
0.0480 ***
0.0417 ***
-0.0154 ***
0.0050
0.0063
0.0035
0.0401 ***
0.0415 ***
-0.0154 ***
0.0078
0.0063
0.0035
-0.0011
0.0048
-0.0012
0.0048
0.0058
0.0271 **
0.0065
0.0026
-0.0008
0.0102
0.0124
0.0080
0.0077
0.0090
***
*
Current Health Limitation and Not
High School Graduate
***
*
Age and Health Limitation (wave t ) Interactions
55-56 * Health Limitation
57-58 * Health Limitation
59-61 * Health Limitation
62-64 * Health Limitation
65-66 * Health Limitation
Marital Status
Married at wave t
Married at wave t+1 , not at t
Married at wave t , divorced at t+1
Married at wave t , widowed at t+1
-0.0795
-0.0160
0.2152
0.1684
***
**
***
***
0.0056
0.0072
0.0346
0.0182
-0.0795
-0.0160
0.2151
0.1683
***
**
***
***
0.0056
0.0072
0.0346
0.0182
-0.0797
-0.0162
0.2141
0.1683
***
**
***
***
0.0056
0.0072
0.0345
0.0182
Spouse Characteristics
African American
Hispanic
Not high school graduate
College graduate
Health limitation at wave t
-0.0004
0.0162 **
0.0202 ***
-0.0068
0.0131 ***
0.0053
0.0083
0.0046
0.0048
0.0040
-0.0004
0.0161 *
0.0202 ***
-0.0068
0.0131 ***
0.0053
0.0083
0.0046
0.0048
0.0040
-0.0003
0.0164 **
0.0201 ***
-0.0068
0.0132 ***
0.0053
0.0083
0.0046
0.0048
0.0040
National Poverty Rate, Wave t+1
-0.0001
0.0013
Mean Likelihood of Falling into
Financial Hardship
Mean Predicted Likelihood of
Falling into Financial Hardship
N
Pseudo R2
0.0015
0.0013
0.0015
0.0013
0.065
0.065
0.065
0.038
24,408
0.171
0.038
24,408
0.171
0.038
24,408
0.172
Source: Authors' estimates from 1992–2006 waves of the Health and Retirement Study (HRS).
Notes: The table reports results from a probit model of the probabilty of having own and spousal income below the poverty level at
wave t+1 , conditional on having income above the poverty level at wave t . Estimates are based on a sample of person-year
observations for women born between 1931 to 1941 whose income is measured every other year from 1993 to 2005. Asterisks
indicate statistically significant effects (* .05 < p < .10; ** .01 < p < .05; *** p <.01).
33
Retirement Policy Program
educational attainment improves. Women are more likely than men, and single adults are more
likely than married adults, to fall into financial hardship. Widowhood and divorce significantly
increase the chances of experiencing hardship.
Conclusions
The likelihood of experiencing financial hardship increases significantly as people approach
Social Security’s early eligibility age. The share of adults with own and spouse incomes below
the poverty level grows by about one-third as people age from their early fifties to their early
sixties. The increase in hardship rates is concentrated among low-skilled workers. Among adults
who did not complete high school, for example, about 3 in 10 experience financial hardship at
age 60 to 61, compared with about 2 in 10 at age 52 to 54. By contrast, hardship rates for college
graduates do not increase significantly as they approach age 62.
Declines in economic well-being in the late fifties and early sixties are closely tied to
work ability. Two-fifths of adults working full-time at age 52 to 54 reduce their labor supply
before age 62; one-fourth completely stop working, leaving the labor force directly from fulltime employment, and another one-seventh move to part-time employment before leaving the
labor force. Financial hardship rates more than quadruple between age 52 to 54 and age 60 to 61
for workers who exit the labor force early directly from full-time employment. The consequences
are particularly serious for those with limited education, more than half of whom report incomes
below the poverty level at age 60 to 61 (up from fewer than 1 in 10 at age 52 to 54). Many of
these departures appear to be at least somewhat involuntary. More than one-quarter of those who
move directly out of the labor force from full-time employment have been laid off from a job in
their fifties or early sixties, and slightly more than one-half report having a health problem that
Financial Hardship before and after Social Security Eligibility
34
limits their ability to work. By contrast, fewer than one in six workers employed full-time
through age 62 report any work disabilities.
Social Security appears to provide important protections for low-income people. The
share of adults experiencing financial hardship declines significantly after age 62, when most
people qualify for Social Security retirement benefits. The impact is especially pronounced for
people with limited education, who are at greatest risk of falling into poverty. For example,
hardship rates for adults who did not complete high school and leave the labor force before
Social Security’s early eligibility age fall from 54 percent at age 60 to 61 to 24 percent at age 63
to 64 to 18 percent at age 66 to 68.
These results highlight the fragility of the income support system for Americans in their
fifties and early sixties. Many people who develop health problems as they age fall into poverty
before reaching Social Security’s early eligibility age. Raising the retirement age would put more
people at risk. As lifespans lengthen and physical job demands decline, more and more older
Americans are able to work, perhaps justifying an increase in Social Security’s early eligibility
age. However, high poverty rates among people in their early sixties with work disabilities reveal
the shortcomings in the existing safety net for people with disabilities. Efforts to shore up the
disability income system will become even more urgent if the Social Security retirement ages are
raised.
35
Retirement Policy Program
References
Betson, David M, and Robert T. Michael. 1997. “Why So Many Children Are Poor.” The Future
of Children 17(2): 25–39.
Blank, Rebecca M., and Mark H. Greenberg. 2008. “Improving the Measurement of Poverty.”
Hamilton Project Discussion Paper 2008-17. Washington, DC: Brookings Institution.
http://www.brookings.edu/~/media/Files/rc/papers/2008/12_poverty_measurement_blank
/12_poverty_measurement_blank.pdf.
Bound, John, Michael Schoenbaum, Todd R. Stinebricker, and Timothy Waidmann. 1998. “The
Dynamic Effects of Health on the Labor Force Transitions of Older Workers.” NBER
Working Paper 6777. Cambridge, MA: National Bureau of Economic Research.
Bureau of Labor Statistics. 2007. National Compensation Survey: Employee Benefits in Private
Industry in the United States, March 2007. Washington, DC: U.S. Department of Labor.
–––––. 2008. “Labor Force Statistics from the Current Population Survey.” Washington, DC:
U.S. Department of Labor. http://data.bls.gov/PDQ/outside.jsp?survey=ln.
Burkhauser, Richard V., Kenneth A. Couch, and John W. Phillips. 1996. “Who Takes Early
Social Security Benefits? The Economics and Health Characteristics of Early
Beneficiaries.” The Gerontologist 36(6): 789–99.
Butrica, Barbara A., Daniel Murphy, and Sheila R. Zedlewski. 2008. “How Many Struggle to
Get By in Retirement?” Retirement Policy Program Discussion Paper 08-01. Washington,
DC: Urban Institute.
Cahill, Kevin E., Giandrea, Michael D., and Joseph F. Quinn. 2005. “Are Traditional
Retirements a Thing of the Past? New Evidence on Retirement Patterns and Bridge Jobs.”
New York, NY: Tinari Economics Group.
Chan, Sewin, and Ann Huff Stevens. 2001. “Job Loss and Employment Patterns of Older
Workers.” Journal of Labor Economics 19(2): 484–521.
Citro, Constance F., and Robert T. Michael. 1995. Measuring Poverty: A New Approach.
Washington, DC: National Academy Press.
Coile, Courtney. 2003. “Health Shocks and Couples’ Labor Supply Decisions.” CRR Working
Paper No. 2003-08. Chestnut Hill, MA: Center for Retirement Research at Boston
College.
Congressional Budget Office. 1999. Raising the Earliest Eligibility Age for Social Security
Benefits. Washington, DC: Congressional Budget Office.
Financial Hardship before and after Social Security Eligibility
36
–––––. 2004. Disability and Retirement: The Early Exit of Baby Boomers from the Labor Force.
Washington, DC: Congressional Budget Office.
Couch, Kenneth A., Nicholas A. Jolly, and Dana W. Placzek. 2009. “Earnings Losses of Older
Displaced Workers: A Detailed Analysis with Administrative Data.” Research on Aging
31(1): 17–40.
Englehardt, Gary V., and Jonathan Gruber. 2004. “Social Security and the Evolution of Elderly
Poverty.” NBER Working Paper 10466. Cambridge, MA: National Bureau of Economic
Research.
Goldin, Claudia, and Lawrence F. Katz. 2007. “Long-Run Changes in the Wage Structure:
Narrowing, Widening, Polarizing.” Brookings Papers on Economic Activity 2007(2):
135–65.
Holzer, Harry, Diane Whitmore Schanzenbach, Greg J. Duncan, and Jens Ludwig. 2007. “The
Economic Costs of Poverty in the United States: Subsequent Effects of Children Growing
Up Poor.” Washington, DC: Center for American Progress.
Hurd, Michael D. 1990. “Research on the Elderly: Economic Status, Retirement, and
Consumption.” Journal of Economic Perspectives 28(2): 565–637.
Hurd, Michael D., F. Thomas Juster, and James P. Smith. 2003. “Enhancing the Quality of Data
on Income: Recent Innovations from the HRS.” Journal of Human Resources 38(3): 758–
72.
Johnson, David S., and Timothy M. Smeeding. 2000. “Who Are the Poor Elderly? An
Examination Using Alternative Poverty Measures.” CRR Working Paper No. 2000-14.
Chestnut Hill, MA: Center for Retirement Research at Boston College.
Johnson, Richard W., and Melissa M. Favreault. 2001. “Retiring Together or Working Alone:
The Impact of Spousal Employment and Disability on Retirement Decisions.” CRR
Working Paper No. 2001-01. Chestnut Hill, MA: Center for Retirement Research at
Boston College.
Johnson, Richard W., and Anthony T. Lo Sasso. 2006. “The Impact of Elder Care on Women’s
Labor Supply at Midlife.” Inquiry 43(3): 195–210.
Johnson, Richard W., Gordon B.T. Mermin, and Dan Murphy. 2007. “The Impact of Late-Career
Health and Employment Shocks on Social Security and Pension Wealth.” Washington,
DC: The Urban Institute.
Johnson, Richard W., Gordon B.T. Mermin, and Matthew Resseger. 2007. “Employment at
Older Ages and the Changing Nature of Work.” AARP Public Policy Institute Report No.
2007-20. Washington, DC: AARP.
http://assets.aarp.org/rgcenter/econ/2007_20_work.pdf.
37
Retirement Policy Program
Lahey, Joanna. 2008. “Age, Women, and Hiring: An Experimental Study.” Journal of Human
Resources 43(1): 30–56.
Leonesio, Michael V., Denton R. Vaughan, Bernard Wixon. 2000. “Early Retirees Under Social
Security: Health Status and Economic Resources.” ORES Working Paper Series Number
86. Washington, DC: Social Security Administration, Office of Research, Evaluation and
Statistics.
McGarry, Kathleen. 2004. “Health and Retirement: Do Changes in Health Affect Retirement
Expectations?” The Journal of Human Resources 39(3): 624–48.
Mermin, Gordon B.T., Richard W. Johnson, and Dan Murphy. 2006. “Why Do Boomers Plan to
Work Longer?” Journal of Gerontology: Social Sciences 62B(5) S286–94.
Munnell, Alicia H., Steven Sass, Mauricio Soto, and Natalia Zhivan. 2006. “Has the
Displacement of Older Workers Increased?” CRR Working Paper No. 2006-17. Chestnut
Hill, MA: Center for Retirement Research at Boston College.
http://crr.bc.edu/images/stories/Working_Papers/wp_2006-17.pdf.
Olson, Janice A. 1999. “Who is ‘62 Enough’? Identifying Respondents Eligible for Social
Security Early Retirement Benefits in the Health and Retirement Study.” Social Security
Bulletin 62(3): 51–56.
Orshansky, Mollie. 1963. “Children of the Poor.” Social Security Bulletin 26(7): 3–13.
Panis, Constantijn, Michael Hurd, David Loughran, Julie Zissimopoulos, Steven Haider, and
Patricia St. Clair. 2002. “The Effects of Changing Social Security Administration’s Early
Entitlement Age and the Normal Retirement Age.” DRU-2903-SSA. Santa Monica, CA:
RAND.
Sawhill, Isabel V. 1988. “Poverty in the U.S.: Why Is It So Persistent?” Journal of Economic
Literature 26 (3): 1073–19.
Simms, Margaret C., and Daniel Kuehn. 2008. “Unemployment Insurance during a Recession.”
Recession and Recovery No. 2. Washington, DC: The Urban Institute.
Smolensky, Eugene, Sheldon Danziger, and Peter Gottschalk. 1988. “The Declining Significance
of Age in the United States: Trends in the Well-Being of Children and the Elderly since
1939.” In The Vulnerable, edited by John L. Palmer, Timothy Smeeding, and Barbara
Boyle Torrey. Washington, DC: Urban Institute Press.
Financial Hardship before and after Social Security Eligibility
38